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When maize pays off

Grinding corn was just one of the 11­year­old boy’s chores in his rural Transkei home. Little did Xolani Ndzaba know that processing maize would turn out to be his bread and butter GRINDING corn was just one of the 11­year­old boy’s chores in his rural Transkei home after his father’s assassination in Soweto in 1977. Little did Xolani Ndzaba know that processing maize would turn out to be his bread and butter. This week he will be delivering his first 400t of maize products to Massmart’s stores as part of a R35m annual offtake agreement the Soweto resident clinched under the retailer’s supplier development programme. From mid­February the umngqusho (samp) that Ndzaba produced with a carved wooden pestle for the humble family meals in his youth wil be a major part of Lethabo Milling’s consignment of 830t of Lethabo Super Maize Meal products that will grace Makro and Masscash’s shelves. “We’re now in full production and will ramp up to meet Massmart’s required volumes while also supplying our other customers,” says Ndzaba.

The mill has a capacity to produce 3 000t a month. Speaking at the Gordon Institute of Business Science on graduation day after a year­long enterprise development course with 32 other Massmart­sponsored entrepreneurs, Ndzaba said the journey had been a long one since he and some partners started the business at a facility in 2010. “We’d knocked on the doors of the major banks and state­owned development financiers, but could not get any funding,” says Ndzaba. The financiers needed the assurance of an offtake agreement before they would provide any funding to establish the Ventersburg, Free State­based milling business, says Ndzaba. When they heard of Massmart’s R242m supplier development plans after the retailer’s takeover by Walmart in 2011, Lethabo approached the retailer with samples of its products. An offtake agreement was clinched in 2013 after the miller obtained food safety regulatory approval, transforming Ndzaba from a hawker of fruit and vegetables on passenger trains in his youth into a fully fledged businessman.

As part of Massmart’s agreement with Absa, Lethabo was granted an R8,2m loan to acquire the mill and working capital, which Massmart topped up with a R1,6m grant. “Massmart also stood surety for half the Absa loan on the property,” says Ndzaba. Lethabo Milling also supplies the local spaza shops in the Free State and Northern Cape. Most of its volumes go to United National Breweries, which uses maize meal to produce amagewu, a non­alcoholic fermented maize drink, alongside its flagship iJuba and Chibuku beers. Massmart has approved commitments amounting to R100m since 2012 to fund small and medium enterprises and develop them into retail suppliers, says Sherry­Lee Singh, the retailer’s supplier development manager. “In addition, we’ve disbursed R71m in the period.” Walmart offered to start a R100m fund to help develop local suppliers as a sweetener for its acquisition of a controlling interest in Massmart in 2011, which the competition tribunal ordered be doubled. “But we’d already spent R42m anyway, so we just carried on, with the total fund now being R242m,” says Singh. Beneficiaries of the fund are not limited to supplying Massmart businesses only.

“We help operational businesses get to the space where they can directly supply retailers, and of course we’d like to buy from them for our own stores,” says Singh. It goes without saying that those businesses that can add to Massmart’s list of goods on the shelves get preference. To qualify for inclusion in the programme, the business must qualify as an SME under the department of trade & industry’s regulations. And it must already be operational and in need of expansion funding or other such help. Under the programme, Massmart will take the operation through enterprise development aspects such as registering with the tax authorities, getting regulatory approvals through to financing. Particular attention is paid to financing fixed property and large capital equipment, says Singh.

First published in the Financial MailBy Sikonathi Mantshantsha
11 February 2015

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